How to pay off a HELOC faster

Leveraging your home's equity to achieve financial goals is empowering. But when the time comes to repay your home equity line of credit (HELOC), that excitement can quickly turn into stress. 

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If you don't want debt looming or monthly payments constricting your cash flow, it makes sense to try and accelerate repayment. Luckily, whether you're in the draw period or repayment period, there are steps you can take. This post will explore how to pay off a HELOC faster and how to determine what's best for you. 

How to pay off a HELOC faster 

A HELOC works as a two-part series—the draw and repayment period. During both phases, you can take steps to drastically improve how quickly you pay off the loan. 

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However, before doing so, be sure to connect with your lender and confirm there are no prepayment penalties and fees. Otherwise, you can use the following strategies to repay your HELOC early:

During the draw period

The draw period is a 5- to 10-year term during which you can borrow funds as you need, up to your credit limit. You're responsible for interest-only payments on what you've borrowed. 

Pay more than interest 

Although you're only on the hook for interest fees during the draw period, making extra payments can reduce the overall balance and amount of interest accrued over time. It's the most straightforward way to shorten the life of the loan and pay off a HELOC quickly. 

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Even small additional payments can make a significant difference in the long run. Consider living frugally and allocating extra monthly cash to paying off more of the balance. If you can manage to pay off the total balance monthly, you won't owe any money during the repayment period. 

Convert to a fixed-rate loan

Switching your HELOC to a fixed-rate option can be a smart way to protect against rising rates. In doing so, you can potentially reduce your interest costs for faster HELOC repayment. In addition to ensuring that more of your money goes towards the balance, it can also help you create predictable monthly payments that are easy to budget for. 

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Many lenders offer fixed-rate conversion options during the draw period, so be sure to connect with your loan provider. 

During the repayment period

Once the draw period ends, the 10- to 20-year repayment period begins. During this time, any remaining balance is converted into a principal-plus-interest loan. You'll be responsible for monthly payments that may fluctuate due to the variable interest rates on the HELOC. 

Make extra payments

Just like during the draw period, you can make extra payments during the repayment period. However, be sure to verify with your lender that these payments are applied directly to the principal balance rather than future interest.

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Consider allocating any additional income, such as your tax refund or money from a side hustle, towards the extra payments. By doing so, you can reduce the principal balance and shorten the loan term—it can also save you thousands in interest. 

Leverage a cash-out refinance

A cash-out refinance replaces your existing mortgage with a larger loan, giving you the difference in cash. The new mortgage pays off your existing mortgage and HELOC, consolidating your debt into a single loan with one monthly payment. 

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Because your rate and terms can also change—based on market conditions and your financial health—a refinance is a great solution if you can secure a more favorable rate than your current mortgage or HELOC's interest rate. 

Use a home equity investment

Another way to cash out on your equity is through a home equity investment (HEI). HEIs offer a single lump sum payout in exchange for a share of your home's future appreciation. You can use the funds to pay off your HELOC or draw enough to pay off the HELOC and accomplish other financial goals.

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HEIs don't have monthly payments, so your cash flow won't be restricted. Instead, you can repay the investment anytime within the 30-year term with a single balloon payment, which can come from selling your home, refinancing, or another source of funds.

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Requirements are generally less stringent than HELOCs and home equity loans. You'll need sufficient equity and a credit score above 500 to qualify. There are no income or debt-to-income requirements.

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Prequalify with no impact on your credit score or commitment to apply.

Refinance into another HELOC

If rates drop, refinancing your current HELOC into a new one can help you save on interest and give you more time to pay off the loan. However, you'll need enough equity to cover paying off the existing HELOC. 

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If you have credit remaining after the payoff, you can continue leveraging the line of credit as you need. The new loan will come with its own draw and repayment period, giving you more time to manage the balance.

Refinance into a home equity loan

You could also refinance your HELOC into a home equity loan. Similarly, you'll need enough equity to pay off the existing balance and can pocket any remaining cash. Should you strategically choose a shorter repayment term, you may face higher monthly payments but will pay off the loan faster.  

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It's an excellent option for those who prefer stable, predictable payments. However, it's best to only refinance into a home equity loan if you can lock into a favorable rate. 

When it makes sense to pay off your HELOC faster

Ultimately, when and how to pay off your HELOC depends on your unique situation. Although debt can feel overwhelming, rushing to pay it down, refinance it, or consolidate it may not be in your best interest. 

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Instead, consider paying off your HELOC early when:

• You won’t face prepayment penalties and fees
• You can reduce your loan costs
• You’ll ease your financial stress
• You won’t jeopardize future financial security

Final thoughts

If you want to take steps toward financial freedom, paying off your HELOC is a great way to start. The most straightforward approach is to make extra payments—whether in the draw or repayment period. 

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However, if you want to pay off a HELOC quickly with the hopes of improving your monthly cash flow, you can leverage refinancing or a home equity investment. 

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Be sure to evaluate your financial situation, goals, and market conditions before deciding on the best strategy. Doing so can help you make the most of your home's equity.

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‍Are you looking to get rid of monthly payments altogether? Consider a Home Equity Investment from Point. Get your finances back on track with a 30-year, monthly payment-free term. Visit point.com/hei to learn more.